What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-24 compared with 2024-11-07 · 90 added, 182 removed, 189 unchanged (59% of the section changed)

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In accordance with the Safe Harbor provisions of the Reform Act, the Company has identified important factors that could cause the actual results to differ materially from those expressed in or implied by such statements.

The assumptions, risks and uncertainties include the pace of student enrollment, our continued compliance with Title IV of the Higher Education Act, and the regulations thereunder, as well as other federal laws and regulations, institutional accreditation standards and state regulatory requirements, rulemaking and other action by the U.S.

Department of Education or other governmental entities, including without limitation action related to borrower defense to repayment applications, gainful employment, 90/10, increased focus by the U.S.

Congress on for-profit education institutions, and including actions by governmental entities in Australia and New Zealand, competitive factors, risks associated with the opening of new campuses, risks associated with the offering of new educational programs and adapting to other changes, risks associated with the acquisition of existing educational institutions including our acquisition of Torrens University and associated assets in Australia and New Zealand, the risk that the benefits of our acquisition of Torrens University and associated assets in Australia and New Zealand may not be fully realized or may take longer to realize than expected, the risk that our acquisition of Torrens University and associated assets in Australia and New Zealand may not advance our business strategy and growth strategy, risks related to the timing of regulatory approvals, our ability to implement our growth strategy, the risk that the combined company may experience difficulty integrating employees or operations, risks associated with the ability of our students to finance their education in a timely manner, and general economic and market conditions.

Congress, actions by the current administration, rulemaking and other action by the U.S.

Department of Education or other governmental entities, including without limitation action related to Title IV programs, U.S.

Department of Education staffing levels, borrower defense to repayment applications, gainful employment, 90/10, increased focus by governmental entities on for-profit education institutions, and including actions by governmental entities in Australia and New Zealand, competitive factors, risks associated with the opening of new campuses, risks associated with the offering of new educational programs and adapting to other changes, risks associated with the acquisition of existing educational institutions including our acquisition of Torrens University and associated assets in Australia and New Zealand, the risk that the benefits of our acquisition of Torrens University and associated assets in Australia and New Zealand may not be fully realized or may take longer to realize than expected, the risk that our acquisition of Torrens University and associated assets in Australia and New Zealand may not advance our business strategy and growth strategy, risks related to the timing of regulatory approvals, our ability to implement our growth strategy, the risk that the combined company may experience difficulty integrating employees or operations, risks associated with the ability of our students to finance their education in a timely manner, and general economic and market conditions.

You should not put undue reliance on any forward-looking statements.

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We operate primarily through our wholly-owned subsidiaries Capella University and Strayer University, both accredited post-secondary institutions of higher education located in the United States, and Torrens University, an accredited post-secondary institution of higher education located in Australia.

Our operations also include the Education Technology Services segment, which develops and maintains relationships with employers to build employee education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree programs.

Our operations also include the Education Technology Services segment, which primarily develops and maintains relationships with employers to build employee education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree programs.

Segments Overview

As of September 30, 2024, we had the following reportable segments:

As of March 31, 2025, we had the following reportable segments:

Higher Education (“USHE”) Segment

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The USHE segment provides academic offerings both online and in physical classrooms, helping working adult students develop specific competencies they can apply in their workplace.

• In the third quarter of 2024, USHE enrollment increased 4.8% to 86,533 compared to 82,548 for the same period in 2023.

• Trailing 4-quarter student persistence within USHE was 87.0% in the second quarter of 2024 compared to 87.3% for the same period in 2023.

• In the first quarter of 2025, USHE enrollment increased to 87,854 compared to 87,731 for the same period in 2024.

• Trailing 4-quarter student persistence within USHE was 87.2% in the fourth quarter of 2024 compared to 87.0% for the same period in 2023.

Student persistence is calculated as the rate of students continuing from one quarter to the next, adjusted for graduates, on a trailing 4-quarter basis.

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87.4 % 87.3 % 87.4 % 87.0 % 86.9 % 87.0 % 86.9 % 87.2 %

• Trailing 4-quarter government provided grants and loans per credit earned within USHE decreased 3.8% as of the end of the second quarter of 2024.

• Trailing 4-quarter government provided grants and loans per credit earned within USHE decreased 4.7% as of the end of the fourth quarter of 2024.

Government provided grants and loans per credit earned includes all Federal loans and grants for students (Title IV hereafter) in our USHE institutions, and is calculated on a trailing 4-quarter basis and reported one quarter in arrears.

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Education Technology Services Segment

• Our Education Technology Services segment develops and maintains relationships with employers to build employee education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree programs.

• Our Education Technology Services segment primarily develops and maintains relationships with employers to build employee education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree programs.

The employer relationships developed by the Education Technology Services segment are an important source of student enrollment for Capella University and Strayer University, and a significant portion of the revenue attributed to the Education Technology Services segment is driven by the volume of enrollment derived from these employer relationships.

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All enrollments attributed to the Education Technology Services segment continue to be attributed to the segment until the student graduates or withdraws, even if his or her employment status changes or if the partnership contract expires.

• In the third quarter of 2024, employer affiliated enrollment as a percentage of USHE enrollment was 29.8% compared to 27.8% for the same period in 2023.

• In the first quarter of 2025, employer affiliated enrollment as a percentage of USHE enrollment was 31.2% compared to 29.2% for the same period in 2024.

• Education Technology Services also supports employer partners through Workforce Edge, a platform which provides employers a full-service education benefits administration solution, and Sophia Learning, which offers low-cost online general education-level courses recommended by the American Council on Education for credit at other colleges and universities.

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Courses are offered both online and at physical campuses.

University is registered with the Tertiary Education Quality and Standards Agency (“TEQSA”), the regulator for higher education providers and universities throughout Australia, as an Australian University that is authorized to self-accredit its courses.

Torrens University is registered with the Tertiary Education Quality and Standards Agency (“TEQSA”), the regulator for higher

education providers and universities throughout Australia, as an Australian University that is authorized to self-accredit its courses.

• Think Education is a vocational registered training organization and accredited higher education provider in Australia.

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Media Design School is accredited in New Zealand by the New Zealand Qualifications Authority, the organization responsible for the quality assurance of non-university tertiary training providers.

• In the third quarter of 2024, Australia/New Zealand enrollment increased 5.1% to 19,205 compared to 18,279 for the same period in 2023.

• In the first quarter of 2025, Australia/New Zealand enrollment decreased 0.6% to 20,082 compared to 20,197 for the same period in 2024.

We believe we have the right operating strategies in place to provide the most direct path between learning and employment for our students.

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income tax provisions;

the useful lives of property and equipment and intangible assets;

the useful lives of property and equipment;

redemption rates for scholarship programs and valuation of contract liabilities;

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Torrens University offers the majority of its education programs on a trimester system having three primary academic terms, which all occur within the calendar year.

Approximately 96% of our revenues during the nine months ended September 30, 2024 consisted of tuition revenue.

Approximately 94% of our revenues during the three months ended March 31, 2025 consisted of tuition revenue.

Capella University offers monthly start options for new students, who then transition to a quarterly schedule.

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Any cash received prior to the start of an academic term or program is recorded as a contract liability.

Students at Capella University and Strayer University finance their education in a variety of ways, and historically about 75% of our students have participated in one or more financial aid program provided through Title IV of the Higher Education Act.

Students at Capella University and Strayer University finance their education in a variety of ways, and historically a majority of our students have participated in one or more financial aid programs provided through Title IV of the Higher Education Act.

In addition, many of our working adult students finance their own education or receive full or partial tuition reimbursement from their employers.

Those students who are veterans or active duty military personnel have access to various additional government-funded educational benefit programs.

In Australia, domestic students attending an ANZ institution finance their education themselves or by taking a loan through the national Higher Education Loan Program provided by the Australian government to support higher education.

In Australia, domestic students may finance their education themselves or by taking a loan through the national Higher Education Loan Program provided by the Australian government to support higher education.

In New Zealand, domestic students may utilize government loans to fund tuition and may be eligible for a period of “fees free” study funded by the government.

International students attending an ANZ institution are not eligible for funding from the Australian or New Zealand governments.

International students are not eligible for funding from the Australian or New Zealand governments.

A typical class is offered in weekly increments over a six- to twelve-week period, depending on the university and course type, and is followed by an exam.

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Periodic reconciliation and true-ups are undertaken between the relevant government authority and the institution based on actual eligible enrollments, which may result in a net amount being due to or from the government.

Students at Strayer University registering in credit-bearing courses in any undergraduate program qualify for the Graduation Fund, whereby qualifying students earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program.

Students at Strayer University registering in credit-bearing courses in any undergraduate program qualify for the Learn and Earn Scholarship (formerly known as the Graduation Fund), whereby qualifying students earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program.

Students must meet all of Strayer University’s admission requirements and not be eligible for any previously offered scholarship program.

To maintain eligibility, students must be enrolled in a bachelor’s degree program.

Students who have more than one consecutive term of non-attendance lose any Graduation Fund credits earned to date, but may earn and accumulate new credits if the student is reinstated or readmitted by Strayer University in the future.

Students who have more than one consecutive term of non-attendance lose any Learn and Earn Scholarship credits earned to date, but may earn and accumulate new credits if the student is reinstated or readmitted by Strayer University in the future.

In their final academic year, qualifying students will receive one free course for every three courses that the student successfully completed in prior years.

Strayer University’s performance obligation associated with free courses that may be redeemed in the future is valued based on a systematic and rational allocation of the cost of honoring the benefit earned to each of the underlying revenue transactions that result in progress by the student toward earning the benefit.

The estimated value of awards under the Graduation Fund that will be recognized in the future is based on historical experience of students’ persistence in completing their course of study and earning a degree and the tuition rate in effect at the time it was associated with the transaction.

The estimated value of awards under the Learn and Earn Scholarship that will be recognized in the future is based on historical experience of students’ persistence in completing their course of study and earning a degree and the tuition rate in effect at the time it was associated with the transaction.

Estimated redemption rates of eligible students vary based on their term of enrollment.

As of September 30, 2024, we had deferred $43.8 million for

estimated redemptions earned under the Graduation Fund, as compared to $44.5 million at December 31, 2023.

As of March 31, 2025, we had deferred $37.7 million for estimated redemptions earned under the Learn and Earn

Scholarship, as compared to $37.1 million at December 31, 2024.

Each quarter, we assess our assumptions underlying our estimates for persistence and estimated redemptions based on actual experience.

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If the financial condition of our students were to deteriorate based on current or expected future events resulting in evidence of impairment of their ability to make required payments for tuition payable to us, additional allowances or write-offs may be required.

For the third quarter of 2024, our bad debt expense was 4.5% of revenue, compared to 5.2% for the same period in 2023.

A change in our allowance for credit losses of 1% of gross tuition receivable as of September 30, 2024 would have changed our income from operations by approximately $1.6 million.

Our bad debt expense was 4.2% of revenue in the first quarter of 2025 and 2024.

A change in our allowance for credit losses of 1% of gross tuition receivable as of March 31, 2025 would have changed our income from operations by approximately $1.4 million.

Goodwill and intangible assets — Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed.

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Goodwill and indefinite-lived intangible assets are assessed at least annually for impairment.

No events or circumstances occurred in the three and nine months ended September 30, 2024 to indicate an impairment to goodwill.

Accordingly, no impairment charges related to goodwill were recorded during the three and nine month periods ended September 30, 2024.

In the second quarter of 2024, the Company recorded a $0.8 million indefinite-lived intangible asset impairment charge.

There were no other impairment charges related to indefinite-lived intangible assets recorded during the three and nine months ended September 30, 2024.

Finite-lived intangible assets that are acquired in business combinations are recorded at fair value on their acquisition dates and are amortized on a straight-line basis over the estimated useful life of the asset.

Finite-lived intangible assets consist of student relationships.

We review our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If such assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amount of the assets exceeds the fair value of the assets.

No impairment charges related to finite-lived intangible assets were recorded during the three and nine month periods ended September 30, 2024.

Other estimates — We record estimates for income tax liabilities and estimate the useful lives of our property and equipment and intangible assets.

No events or circumstances occurred in the three months ended March 31, 2025 to indicate an impairment to goodwill or indefinite-lived intangible assets.

Accordingly, no impairment charges related to goodwill or indefinite-lived intangible assets were recorded during the three months ended March 31, 2025.

Other estimates — We record estimates for income tax liabilities and estimate the useful lives of our property and equipment.

We also periodically review our assumed forfeiture rates and ability to achieve performance targets for stock-based awards and adjust them as necessary.

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Results of Operations

In the third quarter of 2024, we generated $306.0 million in revenue compared to $285.9 million for the same period in 2023.

Our income from operations was $36.3 million in the third quarter of 2024 compared to $25.6 million for the same period in 2023, primarily due to higher revenue driven by enrollment growth in the USHE and Australia/New Zealand segments and growth in Sophia Learning subscriptions in the Education Technology Services segment, lower restructuring costs, and lower amortization expense of intangible assets, partially offset by higher operating expenses.

Net income in the third quarter of 2024 was $27.7 million compared to $18.5 million for the same period in 2023, and diluted earnings per share was $1.15 in the third quarter of 2024 compared to $0.77 for the same period in 2023.

For the nine months ended September 30, 2024, we generated $908.5 million in revenue compared to $830.2 million for the same period in 2023.

Our income from operations was $119.6 million for the nine months ended September 30, 2024 compared to $41.1 million for the same period in 2023, primarily due to higher revenue driven by enrollment growth in the USHE and Australia/New Zealand segments and growth in Sophia Learning subscriptions in the Education Technology Services segment, lower restructuring costs, and lower amortization expense of intangible assets, partially offset by higher operating expenses.

Net income was $87.3 million for the nine months ended September 30, 2024 compared to $30.7 million for the same period in 2023, and diluted earnings per share was $3.62 for the nine months ended September 30, 2024 compared to $1.28 for the same period in 2023.

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

Consolidated revenue increased to $306.0 million in the third quarter of 2024 compared to $285.9 million in the third quarter of 2023, primarily due to enrollment growth in the USHE and Australia/New Zealand segments and growth in Sophia Learning subscriptions.

In the USHE segment for the three months ended September 30, 2024, total enrollment increased 4.8% to 86,533 from 82,548 for the same period in 2023.

USHE segment revenue increased 2.9% to $207.7 million in the third quarter of 2024 compared to $201.8 million in the third quarter of 2023, primarily due to an increase in enrollment, partially offset by lower revenue per student.

In the Australia/New Zealand segment for the three months ended September 30, 2024, total enrollment increased 5.1% to 19,205 from 18,279 for the same period in 2023.

Australia/New Zealand segment revenue increased 13.7% to $71.9 million in the third quarter of 2024 compared to $63.3 million in the third quarter of 2023, primarily due to an increase in enrollment, higher revenue per student as a result of students taking higher course loads, and favorable foreign currency exchange impacts.

Education Technology Services segment revenue increased 26.2% to $26.3 million in the third quarter of 2024 compared to $20.8 million in the third quarter of 2023, primarily as a result of growth in Sophia Learning subscriptions and higher employer affiliated enrollment.

Instructional and support costs.

Consolidated instructional and support costs increased to $162.7 million in the third quarter of 2024 compared to $155.7 million in the third quarter of 2023, principally due to increases in personnel-related costs, stock-based compensation expense, and technology-related expenses, and unfavorable foreign currency exchange impacts, partially offset by lower student material costs, bad debt expense, and facility costs.

Consolidated instructional and support costs as a percentage of revenues decreased to 53.2% in the third quarter of 2024 from 54.5% in the third quarter of 2023.

General and administration expenses .

Consolidated general and administration expenses increased to $106.2 million in the third quarter of 2024 compared to $97.6 million in the third quarter of 2023, principally due to higher personnel-related costs, increased investments in branding initiatives and partnerships with brand ambassadors, higher stock-based compensation expense, and unfavorable foreign currency exchange impacts.

Consolidated general and administration expenses as a percentage of revenues increased to 34.7% in the third quarter of 2024 from 34.1% in the third quarter of 2023.

Amortization of intangible assets .

There was no amortization of intangible assets in the third quarter of 2024 compared to $3.4 million in the third quarter of 2023, due to the finite-lived intangible assets acquired through the acquisition of ANZ becoming fully amortized in the fourth quarter of 2023.

Merger and integration costs.

There were no merger and integration costs in the third quarter of 2024 compared to $0.3 million in the third quarter of 2023.

These costs primarily related to integration expenses associated with the Company’s acquisition of ANZ.

Restructuring costs .

Restructuring costs decreased to $0.8 million in the third quarter of 2024 compared to $3.3 million in the third quarter of 2023, primarily due to a $2.3 million decrease in severance and other personnel-related expenses from employee terminations and a $0.1 million decrease in asset impairment charges.

Income from operations .

Consolidated income from operations increased to $36.3 million in the third quarter of 2024 compared to $25.6 million in the third quarter of 2023, primarily due to higher revenue driven by enrollment growth in the USHE and Australia/New Zealand segments and growth in Sophia Learning subscriptions in the Education Technology Services segment, lower restructuring costs, and lower amortization expense of intangible assets, partially offset by higher operating expenses.

USHE segment income from operations increased 9.9% to $11.4 million in the third quarter of 2024 compared to $10.4 million in the third quarter of 2023, primarily driven by higher revenue due to an increase in enrollment, decreased investments in branding initiatives, lower student material costs, and lower bad debt expense, partially offset by higher personnel-related costs, stock-based compensation expense, and technology-related expenses.

Australia/New Zealand segment income from operations increased 7.0% to $14.8 million in the third quarter of 2024 compared to $13.9 million in the third quarter of 2023, primarily driven by higher revenue due to an increase in enrollment and higher revenue per student as a result of students taking higher course loads, partially offset by increased investments in branding initiatives, higher personnel-related costs, and higher stock-based compensation expense.

Education Technology Services segment income from operations increased 29.8% to $10.8 million in the third quarter of 2024 compared to $8.3 million in the third quarter of 2023, primarily due to higher revenue as a result of growth in Sophia Learning subscriptions and an increase in employer affiliated enrollment, partially offset by higher personnel-related costs.

Other income.

Other income increased to $2.3 million in the third quarter of 2024 compared to $0.8 million in the third quarter of 2023, primarily due to a $1.3 million decrease in interest expense and a $0.2 million increase in interest income.

We incurred $0.7 million of interest expense in the three months ended September 30, 2024 compared to $2.0 million in the three months ended September 30, 2023.

Provision for income taxes.

Income tax expense was $10.8 million in the third quarter of 2024, compared to $8.0 million in the third quarter of 2023.

Our effective tax rate for the third quarter of 2024 was 28.1% compared to 30.3% in the third quarter of 2023.

Net income increased to $27.7 million in the third quarter of 2024 compared to $18.5 million in the third quarter of 2023 due to the factors discussed above.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Consolidated revenue increased to $908.5 million in the nine months ended September 30, 2024 compared to $830.2 million in the same period in 2023, primarily due to enrollment growth in the USHE and Australia/New Zealand segments and growth in Sophia Learning subscriptions, partially offset by unfavorable foreign currency exchange impacts.

USHE segment revenue increased 7.0% to $643.6 million in the nine months ended September 30, 2024 compared to $601.4 million in the same period in 2023, primarily due to an increase in enrollment.

Australia/New Zealand segment revenue increased 11.9% to $190.5 million in the nine months ended September 30, 2024 compared to $170.2 million in the same period in 2023, primarily due to an increase in enrollment and higher revenue per student as a result of students taking higher course loads, partially offset by unfavorable foreign currency exchange impacts.

Education Technology Services segment revenue increased 27.1% to $74.5 million in the nine months ended September 30, 2024 compared to $58.6 million in the same period in 2023, primarily as a result of growth in Sophia Learning subscriptions and higher employer affiliated enrollment.

In the first quarter of 2025, we generated $303.6 million in revenue compared to $290.3 million for the same period in 2024.

Our income from operations was $39.8 million in the first quarter of 2025 compared to $41.4 million for the same period in 2024, due to higher restructuring costs and operating expenses, partially offset by higher revenue in our Education Technology Services segment, which was primarily driven by an increase in Workforce Edge revenue from new employer partnerships and growth in Sophia Learning subscriptions.

Net income in the first quarter of 2025 and 2024 was $29.7 million, and diluted earnings per share was $1.24 in the first quarter of 2025 compared to $1.23 for the same period in 2024.

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

Consolidated revenue increased to $303.6 million in the first quarter of 2025 compared to $290.3 million in the first quarter of 2024, primarily due to higher revenue in our Education Technology Services segment, which was driven by an increase in Workforce Edge revenue from new employer partnerships and growth in Sophia Learning subscriptions.

In the USHE segment for the three months ended March 31, 2025, total enrollment increased to 87,854 from 87,731 for the same period in 2024.

USHE segment revenue increased 0.8% to $221.0 million in the first quarter of 2025 compared to $219.2 million in the first quarter of 2024, primarily due to higher revenue per student.

In the Australia/New Zealand segment for the three months ended March 31, 2025, total enrollment decreased 0.6% to 20,082 from 20,197 for the same period in 2024.

Australia/New Zealand segment revenue increased 1.9% to $48.3 million in the first quarter of 2025 compared to $47.4 million in the first quarter of 2024, primarily due to higher revenue per student, partially offset by unfavorable foreign currency exchange impacts.

Education Technology Services segment revenue increased 45.2% to $34.3 million in the first quarter of 2025 compared to $23.6 million in the first quarter of 2024, primarily due to an increase in Workforce Edge revenue from new employer partnerships, growth in Sophia Learning subscriptions, and higher employer affiliated enrollment.

Instructional and support costs.

Consolidated instructional and support costs increased to $483.6 million in the nine months ended September 30, 2024 compared to $470.2 million in the same period in 2023, principally due to increases in personnel-related costs, technology-related expenses, bad debt expense, and stock-based compensation expense, partially offset by lower student material costs and favorable foreign currency exchange impacts.

Consolidated instructional and support costs as a percentage of revenues decreased to 53.2% in the nine months ended September 30, 2024 from 56.6% in the nine months ended September 30, 2023.

Consolidated instructional and support costs increased to $158.3 million in the first quarter of 2025 compared to $157.7 million in the first quarter of 2024, principally due to increases in stock-based compensation expense, technology-related costs, depreciation expense, and bad debt expense, partially offset by lower student material and facility expenses, and favorable foreign currency exchange impacts.

Consolidated instructional and support costs as a percentage of

revenues decreased to 52.1% in the first quarter of 2025 from 54.3% in the first quarter of 2024.

General and administration expenses .

Consolidated general and administration expenses increased to $308.0 million in the nine months ended September 30, 2024 compared to $292.1 million in the same period in 2023, principally due to higher personnel-related costs, increased investments in branding initiatives and partnerships with brand ambassadors, and higher stock-based compensation expense, partially offset by favorable foreign currency exchange impacts.

Consolidated general and administration expenses as a percentage of revenues decreased to 33.9% in the nine months ended September 30, 2024 from 35.2% in the nine months ended September 30, 2023.

Amortization of intangible assets .

There was no amortization of intangible assets in the nine months ended September 30, 2024 compared to $10.4 million in the same period in 2023, due to the finite-lived intangible assets acquired through the acquisition of ANZ becoming fully amortized in the fourth quarter of 2023.

Merger and integration costs.

There were no merger and integration costs in the nine months ended September 30, 2024 compared to $1.3 million in the same period in 2023.

These costs primarily related to integration expenses associated with the Company’s acquisition of ANZ.

Consolidated general and administration expenses increased to $103.6 million in the first quarter of 2025 compared to $96.7 million in the first quarter of 2024, principally due to increased investments in branding initiatives and partnerships with brand ambassadors and higher personnel-related costs, partially offset by lower stock-based compensation expense and favorable foreign currency exchange impacts.

Consolidated general and administration expenses as a percentage of revenues increased to 34.1% in the first quarter of 2025 from 33.3% in the first quarter of 2024.

Restructuring costs .

Restructuring costs decreased to a $2.8 million net benefit in the nine months ended September 30, 2024 compared to $15.2 million of net costs in the same period in 2023, primarily due to a $9.1 million decrease in severance and other personnel-related expenses from employee terminations, a $6.1 million increase in gains related to the early termination of operating leases, and a $4.7 million decrease in asset impairment charges, partially offset by a $2.1 million gain from the sale of property and equipment of an owned campus in 2023.

Restructuring costs increased to $1.9 million in the first quarter of 2025 compared to a $5.5 million net benefit in the first quarter of 2024, primarily due to a $6.2 million gain related to the early termination of operating leases in the first quarter of 2024, a $1.1 million increase in severance and other personnel-related expenses from employee terminations and a $0.2 million increase in asset impairment charges.

Income from operations .

Consolidated income from operations increased to $119.6 million in the nine months ended September 30, 2024 compared to $41.1 million in the same period in 2023, primarily due to higher revenue driven by enrollment growth in the USHE and Australia/New Zealand segments and growth in Sophia Learning subscriptions in the Education Technology Services segment, lower restructuring costs, and lower amortization expense of intangible assets, partially offset by higher operating expenses.

USHE segment income from operations increased to $59.3 million in the nine months ended September 30, 2024 compared to $26.7 million in the same period in 2023, primarily driven by higher revenue due to an increase in enrollment, decreased investments in branding initiatives, and lower student material costs, partially offset by higher personnel-related costs, technology-related expenses, and bad debt expense.

Australia/New Zealand segment income from operations increased 27.0% to $26.7 million in the nine months ended September 30, 2024 compared to $21.0 million in the same period in 2023, primarily driven by higher revenue due to an increase in enrollment and higher revenue per student as a result of students taking higher course loads, partially offset by increased investments in branding initiatives, higher personnel-related costs, and higher stock-based compensation expense.

Education Technology Services segment income from operations increased 52.5% to

$30.9 million in the nine months ended September 30, 2024 compared to $20.3 million in the same period in 2023, primarily due to higher revenue as a result of growth in Sophia Learning subscriptions and an increase in employer affiliated enrollment, partially offset by higher personnel-related costs.

Consolidated income from operations decreased to $39.8 million in the first quarter of 2025 compared to $41.4 million in the first quarter of 2024, due to higher restructuring costs and operating expenses, partially offset by higher revenue in our Education Technology Services segment, which was primarily driven by an increase in Workforce Edge revenue from new employer partnerships and growth in Sophia Learning subscriptions.

USHE segment income from operations increased 6.9% to $30.0 million in the first quarter of 2025 compared to $28.0 million in the first quarter of 2024, primarily driven by higher revenue due to an increase in revenue per student, lower student material costs and lower personnel-related costs, partially offset by increased investments in branding initiatives, higher bad debt expense, and higher stock-based compensation expense.

Australia/New Zealand segment loss from operations decreased to $2.1 million in the first quarter of 2025 compared to a loss from operations of $2.3 million in the first quarter of 2024, primarily driven by higher revenue due to an increase in revenue per student and lower stock-based compensation expense, partially offset by higher personnel-related costs and increased investments in branding initiatives.

Education Technology Services segment income from operations increased 37.3% to $13.8 million in the first quarter of 2025 compared to $10.1 million in the first quarter of 2024, primarily due to higher revenue as a result of an increase in Workforce Edge revenue from new employer partnerships, growth in Sophia Learning subscriptions, and higher employer affiliated enrollment, partially offset by higher personnel-related costs and increased investments in branding initiatives.

Other income.

Other income decreased to $3.9 million in the nine months ended September 30, 2024 compared to $4.4 million in the same period in 2023, primarily due to a $5.0 million decrease in net investment income from our limited partnership investments, partially offset by a $2.1 million increase in interest income and a $2.4 million decrease in interest expense.

We incurred $3.4 million of interest expense in the nine months ended September 30, 2024 compared to $5.8 million in the same period in 2023.

Other income increased to $2.2 million in the first quarter of 2025 compared to $1.8 million in the first quarter of 2024, primarily due to a $1.1 million decrease in interest expense, partially offset by a $0.6 million decrease in interest income.

We incurred $0.3 million of interest expense in the three months ended March 31, 2025 compared to $1.4 million in the three months ended March 31, 2024.

Provision for income taxes.

Income tax expense was $36.2 million in the nine months ended September 30, 2024 compared to $14.8 million in the same period in 2023.

Income tax expense for the nine months ended September 30, 2024 and 2023 include shortfall tax impacts of approximately $1.2 million and $1.4 million, respectively, related to share-based payment arrangements.

Net income increased to $87.3 million in the nine months ended September 30, 2024 compared to $30.7 million in the same period in 2023 due to the factors discussed above.

Income tax expense was $12.3 million in the first quarter of 2025, compared to $13.4 million in the first quarter of 2024.

Income tax expense for the three months ended March 31, 2024 and 2025 include shortfall tax impacts of approximately $1.3 million and windfall tax impacts of approximately $0.5 million, respectively, related to share-based payment arrangements.

Our effective tax rate for the first quarter of 2025 was 29.2% compared to 31.2% in the first quarter of 2024.

Net income was $29.7 million in the first quarter of 2025 and 2024 due to the factors discussed above.

Non-GAAP Financial Measures

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These measures, which are considered “non-GAAP financial measures” under SEC rules, are defined by us to exclude the following:

• amortization and depreciation expense related to intangible assets and software assets acquired through our acquisition of Torrens University and associated assets in Australia and New Zealand;

• integration expenses associated with our merger with Capella Education Company and our acquisition of Torrens University and associated assets in Australia and New Zealand;

• severance costs, asset impairment charges, gains on sale of real estate and early termination of leased facilities, and other costs associated with our restructuring activities;

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• discrete tax adjustments related to stock-based compensation and other adjustments.

To illustrate currency impacts to operating results, Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share for the three and nine months ended September 30, 2024 are also presented on a constant currency basis.

To illustrate currency impacts to operating results, Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share for the three months ended March 31, 2025 are also presented on a constant currency basis.

When considered together with GAAP financial results, we believe these measures provide management and investors with an additional understanding of our business and operating results, including underlying trends associated with our ongoing operations.

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A reconciliation of these measures to the most directly comparable GAAP measures is provided below.

Adjusted income from operations was $37.1 million in the third quarter of 2024 compared to $32.6 million for the same period in 2023.

Adjusted net income was $27.9 million in the third quarter of 2024 compared to $23.3 million for the same period in 2023, and adjusted diluted earnings per share was $1.16 in the third quarter of 2024 compared to $0.97 for the same period in 2023.

Adjusted income from operations was $116.8 million for the nine months ended September 30, 2024 compared to $68.0 million for the same period in 2023.

Adjusted net income was $86.9 million for the nine months ended September 30, 2024 compared to $48.7 million for the same period in 2023, and adjusted diluted earnings per share was $3.60 for the nine months ended September 30, 2024 compared to $2.03 for the same period in 2023.

The tables below reconcile our reported results of operations to adjusted results (amounts in thousands, except per share data):

Reconciliation of Reported to Adjusted Results of Operations for the three months ended September 30, 2024

Adjusted income from operations was $41.7 million in the first quarter of 2025 compared to $35.8 million for the same period in 2024.

Adjusted net income was $31.2 million in the first quarter of 2025 compared to $26.7 million for the same period in 2024, and adjusted diluted earnings per share was $1.30 in the first quarter of 2025 compared to $1.11 for the same period in 2024.

The tables below reconcile our reported results of operations to adjusted results:

Reconciliation of Reported to Adjusted Results of Operations for the three months ended March 31, 2025 (in thousands, except per share data)

Non-GAAP Adjustments

(GAAP) Amortization of intangible assets (1)

Merger and integration costs (2)

Restructuring costs (3)

(GAAP) Restructuring costs (1)

Loss from other investments (2)

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Weighted average diluted shares outstanding 24,065 24,065

Reconciliation of Reported to Adjusted Results of Operations for the three months ended September 30, 2023

Non-GAAP Adjustments

(GAAP) Amortization of intangible assets (1)

Merger and integration costs (2)

Restructuring costs (3)

Income from other investments (4)

adjustments (5)

Revenues $ 285,936 $ — $ — $ — $ — $ — $ 285,936

Total costs and expenses $ 260,307 $ (3,382) $ (330) $ (3,262) $ — $ — $ 253,333

Income from operations $ 25,629 $ 3,382 $ 330 $ 3,262 $ — $ — $ 32,603

Operating margin 9.0% 11.4%

Income before income taxes $ 26,471 $ 3,382 $ 330 $ 3,262 $ (215) $ — $ 33,230

Net income $ 18,459 $ 3,382 $ 330 $ 3,262 $ (215) $ (1,957) $ 23,261

Diluted earnings per share $ 0.77 $ 0.97

Weighted average diluted shares outstanding 23,870 23,870

Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2024

Reconciliation of Reported to Adjusted Results of Operations for the three months ended March 31, 2024 (in thousands, except per share data)

Non-GAAP Adjustments

(GAAP) Amortization of intangible assets (1)

Merger and integration costs (2)

Restructuring costs (3)

(GAAP) Restructuring costs (1)

Loss from other investments (2)

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Weighted average diluted shares outstanding 24,060 24,060

Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2023

Non-GAAP Adjustments

(GAAP) Amortization of intangible assets (1)

Merger and integration costs (2)

Restructuring costs (3)

Income from other investments (4)

adjustments (5)

Revenues $ 830,222 $ — $ — $ — $ — $ — $ 830,222

Total costs and expenses $ 789,125 $ (10,364) $ (1,335) $ (15,208) $ — $ — $ 762,218

Income from operations $ 41,097 $ 10,364 $ 1,335 $ 15,208 $ — $ — $ 68,004

Operating margin 5.0% 8.2%

Income before income taxes $ 45,508 $ 10,364 $ 1,335 $ 15,208 $ (2,826) $ — $ 69,589

Net income $ 30,662 $ 10,364 $ 1,335 $ 15,208 $ (2,826) $ (6,031) $ 48,712

Diluted earnings per share $ 1.28 $ 2.03

Weighted average diluted shares outstanding 23,952 23,952

_________________________________________________________________________________________

(1) Reflects amortization and depreciation expense of intangible assets and software assets acquired through the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand.

(2) Reflects integration expenses associated with the Company’s merger with Capella Education Company and the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand.

(1) Reflects severance costs, asset impairment charges, gains on sale of real estate and early termination of leased facilities, and other costs associated with the Company’s restructuring activities.

(2) Reflects income/loss recognized from the Company’s investments in partnership interests and other investments.

(5) Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing adjusted effective tax rates of 29.5% and 30.0% for the three and nine months ended September 30, 2024 and 2023, respectively.

The table below presents our adjusted results of operations on a constant currency basis for the three and nine months ended September 30, 2024 (amounts in thousands, except per share data):

For the three months ended September 30, 2024 For the nine months ended September 30, 2024

(Non-GAAP) Constant currency adjustment (1)

As Adjusted with Constant Currency

(Non-GAAP) As Adjusted

(3) Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing adjusted effective tax rates of 29.0% and 29.5% for the three months ended March 31, 2025 and 2024, respectively.

The table below presents our adjusted results of operations on a constant currency basis for the three months ended March 31, 2025 (in thousands, except per share data):

For the three months ended March 31, 2025

(Non-GAAP) Constant currency adjustment (1)

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__________________________________________________________________________________________

(1) Reflects an adjustment to translate foreign currency results for the three and nine months ended September 30, 2024 at a constant exchange rate of 0.65 and 0.67 Australian Dollars to U.S.

Dollars, respectively, which were the average exchange rates for the same period in 2023.

(1) Reflects an adjustment to translate foreign currency results for the three months ended March 31, 2025 at a constant exchange rate of 0.66 Australian Dollars to U.S.

Dollars, which was the average exchange rate for the same period in 2024.

Liquidity and Capital Resources

At September 30, 2024, we had cash, cash equivalents, and marketable securities of $222.1 million compared to $208.7 million at December 31, 2023 and $198.6 million at September 30, 2023.

We maintain our cash and cash equivalents primarily in money market funds and demand deposit bank accounts at high credit quality financial institutions, which are included in cash and cash equivalents at September 30, 2024 and 2023.

In addition, we invest excess cash in U.S.

treasury bills with maturities of three months or less, which are included in cash and cash equivalents.

We also hold marketable securities, which primarily include tax-exempt municipal securities, corporate debt securities, and term deposits.

During the nine months ended September 30, 2024 and 2023, we earned interest income of $9.7 million and $7.6 million, respectively.

We are party to a credit facility (the “Amended Credit Facility”), which, prior to the Amendment (as defined below) in October 2024, provided for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $350 million.

At March 31, 2025, we had cash, cash equivalents, and marketable securities of $197.6 million compared to $199.0 million at December 31, 2024 and $253.6 million at March 31, 2024.

We also hold marketable securities, which primarily include corporate debt securities, U.S.

treasury securities with maturities greater than three months, and term deposits.

During the three months ended March 31, 2025 and 2024, we earned interest income of $2.5 million and $3.1 million, respectively.

We are party to a credit facility (“Amended Credit Facility”), which provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $250 million.

The Amended Credit Facility provides us with an option, subject to obtaining additional loan commitments and satisfaction of certain conditions, to increase the commitments under the Revolving Credit Facility or establish one or more incremental term loans (each, an “Incremental Facility”) in an amount up to the sum of (x) the greater of (A) $300 million and (B) 100% of the Company’s consolidated EBITDA (earnings before interest, taxes, depreciation, amortization, and noncash charges, such as stock-based compensation) calculated on a trailing four-quarter basis and on a pro forma basis, and (y) if such Incremental Facility is incurred in connection with a permitted acquisition or other permitted investment, any amounts so long as the Company’s leverage ratio (calculated on a trailing four-quarter basis) on a pro forma basis will be no greater than 1.75:1.00.

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An unused commitment fee ranging from 0.20% to 0.30% per annum, depending on our leverage ratio, accrues on unused amounts.

We were in compliance with all applicable covenants related to the Amended Credit Facility as of September 30, 2024.

In July 2024, we repaid the remaining $61.3 million outstanding balance under the Revolving Credit Facility.

We had no borrowings outstanding under the Revolving Credit Facility as of September 30, 2024 and $61.2 million outstanding under our Revolving Credit Facility as of September 30, 2023.

During the nine months ended September 30, 2024 and 2023, we paid $3.1 million and $5.4 million, respectively, of interest and unused commitment fees related to our Revolving Credit Facility.

On October 18, 2024, we entered into a Sixth Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement and Amendment to Other Loan Documents (the “Amendment”) with certain of our subsidiaries party thereto as subsidiary guarantors, Truist Bank, as administrative agent, and the other lenders party thereto.

The Amendment, among other things, (i) extends the maturity date of the Revolving Credit Facility from November 3, 2025 to October 18, 2029 and (ii) reduces the total commitments under the Revolving Credit Facility from $350 million to $250 million.

Except as amended by the Amendment, the remaining terms of the Amended Credit Facility remain in full force and effect.

The foregoing descriptions of the Amendment do not purport to be complete and are qualified in their entirety by reference to the full text of the Amendment which is filed as Exhibit 10.1 to this Quarterly Report and incorporated by reference herein.

Our net cash provided by operating activities for the nine months ended September 30, 2024 increased to $153.4 million, compared to $87.2 million for the same period in 2023.

The increase in net cash from operating activities was primarily driven by higher earnings and favorable working capital.

Our net cash used in investing activities for the nine months ended September 30, 2024 decreased to $15.2 million, compared to $30.5 million for the same period in 2023.

The decrease in net cash used in investing activities was primarily driven by a $20.9 million increase in cash proceeds from marketable securities and other investments and a $2.2 million decrease in purchases of marketable securities, partially offset by $5.9 million of cash proceeds related to the sale of property and equipment in 2023 and higher capital expenditures for the nine months ended September 30, 2024.

Capital expenditures increased to $29.3 million for the nine months ended September 30, 2024, compared to $27.3 million for the same period in 2023, primarily due to the timing of capital projects.

Our net cash used in financing activities for the nine months ended September 30, 2024 increased to $114.1 million, compared to $99.1 million for the same period in 2023.

The increase in net cash used in financing activities was primarily driven by a $61.3 million long-term debt payment during the nine months ended September 30, 2024 compared to a $40.0 million long-term debt payment for the same period in 2023, partially offset by a $5.0 million decrease in share repurchases and a $1.4 million decrease in net payments for employee stock awards.

The Board of Directors declared a regular, quarterly cash dividend of $0.60 per share of common stock in each of the first three quarters of 2024.

During the nine months ended September 30, 2024, we paid a total of $44.3 million in cash dividends on our common stock, compared to $44.1 million for the same period in 2023.

During the nine months ended September 30, 2024, we paid $5.0 million to repurchase shares of common stock in the open market under our repurchase program, compared to $10.0 million for the same period in 2023.

As of September 30, 2024, we had $235.0 million of share repurchase authorization remaining to use through December 31, 2024.

For the third quarter of 2024 and 2023, bad debt expense as a percentage of revenue was 4.5% and 5.2%, respectively.

We were in compliance with all applicable covenants related to the Amended Credit Facility as of March 31, 2025.

We had no borrowings outstanding under the Revolving Credit Facility as of March 31, 2025 and $61.3 million outstanding under our Revolving Credit Facility as of March 31, 2024.

During the three months ended March 31, 2025 and 2024, we paid $0.1 million and $1.2 million, respectively, of interest and unused commitment fees related to our Revolving Credit Facility.

Our net cash provided by operating activities for the three months ended March 31, 2025 decreased to $67.7 million, compared to $77.6 million for the same period in 2024.

The decrease in net cash from operating activities was primarily driven by unfavorable changes in working capital.

Our net cash used in investing activities for the three months ended March 31, 2025 increased to $1.7 million, compared to $1.0 million for the same period in 2024.

The increase in net cash used in investing activities was primarily driven by a $25.6 million increase in purchases of marketable securities and a $1.1 million increase in capital expenditures, partially offset by a $26.1 million increase in cash proceeds from marketable securities and other investments.

Capital expenditures increased to $10.3 million for the three months ended March 31, 2025, compared to $9.2 million for the same period in 2024, primarily due to the timing of capital projects.

Our net cash used in financing activities for the three months ended March 31, 2025 increased to $56.1 million, compared to $18.4 million for the same period in 2024.

The increase in net cash used in financing activities was primarily driven by $32.0 million of share repurchases during the three months ended March 31, 2025 and a $5.6 million increase in net payments for employee stock awards.

The Board of Directors declared a regular, quarterly cash dividend of $0.60 per share of common stock in the first quarter of 2025.

During the three months ended March 31, 2025, we paid a total of $14.8 million in cash dividends on our common stock, compared to $14.7 million for the same period in 2024.

During the three months ended March 31, 2025, we paid $32.0 million to repurchase shares of common stock in the open market under our repurchase program.

As of March 31, 2025, we had $196.5 million remaining in share repurchase authorization to use through December 31, 2025.

For the first quarter of 2025 and 2024, bad debt expense as a percentage of revenue was 4.2%.

Our recurring cash requirements consist primarily of general operating expenses, capital expenditures, discretionary dividend payments, income tax payments, and contractual obligations related to our lease agreements, limited partnership investments, and Revolving Credit Facility.

We believe that the combination of our existing cash, cash equivalents, and marketable securities, cash

generated from operating activities, and if necessary, cash available under our Amended Credit Facility will be sufficient to meet our cash requirements for the next 12 months and beyond.

We believe that the combination of our existing cash, cash equivalents, and marketable securities, cash generated from operating activities, and if necessary, cash available under our Amended Credit Facility will be sufficient to meet our cash requirements for the next 12 months and beyond.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis